2.9 million dollars. That’s the eye-watering price Sina Estavi paid in March 2021 for an NFT of the first ever tweet.
About a year later, Estavi looked to cash in, putting his NFT up for auction on the OpenSea marketplace for a heart-stopping $48 million—16 times what he’d paid. But…
After two weeks on the market, the NFT still hadn’t sold. The highest bid? Just 10.3 ether (ETH), or about $31,000—99% less than Estavi paid. Ouch!
For NFT critics, this epitomizes everything that’s wrong with NFTs: people paying grossly overinflated prices for what are essentially jpegs that we all can right-click and save for free.
So, why do people buy NFTs?
What is an NFT?
To understand what makes an NFT valuable, it helps to first understand what an NFT is. NFT stands for non-fungible token … Let’s break that down.
“Non-fungible” is a fancy word used to describe something that can’t be easily traded or replaced. Money is fungible, one dollar can be exchanged for another because they have equal value. Fine art is non-fungible, the original Mona Lisa can’t be traded for a copy because they’ll never be equal in value.
“Token” refers to a digital asset that can be created and traded using blockchain technology. Bitcoins are fungible tokens. They are mined, bought, and sold on the blockchain, where every transaction is recorded and verified by the underlying technology.
That makes NFTs limited edition or one-of-a-kind crypto tokens with blockchain technology recording and verifying their ownership. Meaning that although you, too, can take a screenshot of the first ever tweet and turn it into an NFT, no one should ever mistake yours for the one Estavi bought from Twitter founder Jack Dorsey.
But so what? Why do people want to buy NFTs?
People buy NFTs for the novelty of it
NFTs are an emerging technology. As such, those who buy them are, by definition, early adopters.
Early adopters tend to be risk-takers and trend-setters—they are the “in” crowd. These folks buy NFTs because they like being the first to try something new, to be able to say “I had an NFT profile pic before anyone else.” For them, it doesn’t matter if NFTs turn out to be a passing fad, they want to be a part of it.
People buy NFTs as collectibles
The “in” crowd isn’t the only community people are buying into with NFTs. Sports teams, musicians, festivals, and brands are all issuing NFTs as a way to connect with their fan base. Some of these NFTs come with perks like VIP passes, celebrity meet and greets, or access to exclusive merchandise.
So as Web3 and the new layers of the internet are being built out before us, NFTs will have an important role to play as a kind of digital membership card that grants us access to clubs, DAOs, and VIP memberships.
NFTs can be more than just images, too. The NFL is selling game highlights as NFTs. The band Kings of Leon sold their album, When You See Yourself, as a collection of NFTs. And Marvel released classic comic books as NFTs. People buy these NFTs for the same reason they buy real-world merch and collectibles.
People buy NFTs for gaming
Speaking of collectibles, NFT trading cards are just one type of blockchain-based game that’s taking the world by storm.
In a blockchain-based game, NFTs can represent anything: trading cards, characters, potions, skins, crafting materials, virtual real estate, and more. Some games require you to buy NFTs before you can play. Others are free to play, then you earn or purchase NFTs as part of the game.
People who buy gaming NFTs do so because it lets them own a piece of the game. They like that they can trade or sell their NFTs with other players. They also enjoy earning in-game currency with real-world value. Axie Infinity popularized the idea of play-to-earn with people collecting the cryptocurrency SLP in game and then selling it on the open market.
People buy NFTs as a speculative investment
The potential to earn money is a big reason why people buy NFTs.
When the Bored Ape Yacht Club NFTs were launched in April 2021, each one was valued at .08 ETH, or roughly $190. By September of that same year, one of the cartoon apes sold for 769 ETH, worth about 2.3 million dollars at the time. Who wouldn’t want to make that kind of profit?
Of course, savvy investors understand that very few NFT projects will ever be as successful as the Bored Ape Yacht Club. They know that buying NFTs from emerging artists, game developers, and bands is risky and highly speculative. But they also see it as a way to support those creators while bypassing traditional middlemen like record labels and game studios.
How do I buy an NFT?
Now that you better understand why people buy NFTs, maybe you’d like to try it for yourself. But how?
The first step is to do your own research. Read up on projects that match your interests—games, art, sports, music, etc.—and learn as much as you can about them.
When you’re ready, find the marketplace that sells your desired NFT. Some NFT projects have their own marketplaces. Others use sites like OpenSea. Before you can purchase your NFT, however, you're going to need a crypto wallet, which can be downloaded to your phone or computer.
Next, you need to buy some cryptocurrency, which you can do using an exchange. Just be sure to double check which currency your NFT is priced in because not all marketplaces use ETH. Finally, connect your wallet to the NFT marketplace and make your purchase!
Congratulations, you are now a member of the “in” crowd!
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.